Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Crude Oil Prices Go NEGATIVE! What's Next?

Commodities / Crude Oil May 02, 2020 - 12:51 PM GMT

By: Nadeem_Walayat

Commodities

Negative oil prices is another corona consequences that no one saw coming. A 30% drop in world oil demand due to the corona lockdown's resulting in demand falling to 70m barrels per day, whilst the producers are pumping out over 90mbd meant that storage faculties had become saturated, thus nowhere to transport new supply to.


What actually triggered the collapse was the expiry of May NYMEX oil futures contracts on the 20th of April for DELIVERY in MAY. Only problem is given the lockdown no one wants to take delivery for May, as there's nowhere to put hundreds of thousands of more barrels of crude oil into storage. So those who usually are expected to take delivery were not buying into expiry which left traders LONG futures contracted who never intended on taking delivery but were just trading the futures, to panic sell to try and liquidate their positions into expiry at any price which given that there weren't many buyers sent the price NEGATIVE i.e. traders LONG oil futures were willing to PAY buyers to take delivery. An unprecedented event in the oil markets.

It would be like your local petrol station paying YOU to fill up your car at their pump!

Negative oil prices whilst being a shockingly an unpremeditated event, and whilst there is a great deal of uncertainty in the markets nevertheless it should be temporary as open interest dries up and many futures traders avoid ending up in a similar position at the next futures expiry around the 20th of May as the current futures prices already illustrate.

However, there is still the issue of producers producing oil that no one wants to buy, which means prices going negative again is more probable than not.

This unprecedented event also confirms my message of several years primarily as a consequence of the climate change megatrend which is to disinvest from the oil sector, this industry is going to continue to experience more pain with or without covid-19 lockdown's..

This also flags a potential issue with ETF's that track the oil price like USO being forced to take delivery, and I would not be surprised if it could even cease trading, which is another reason why I generally prefer not to invest in funds but rather individual stocks because instead of reducing risks as the investors assume, they in fact INCREASE risks at times of crisis.

So what's next for oil prices?

In terms of price the trading range is $20 to $29 as I imagine a lot of supply destruction is taking place below $20, in fact I suspect anything below $40 is destroying supply. Which means that the oil price should resolve to it's trading range of $20 to $30 from the current $13. However that does not include the front month going into expiry i.e. June which could go negative once more as likely most western nations will remain locked down into late May and thus far more supply than demand and storage.

Fundamentally, the corona depression means that the supply far exceeds demand for crude oil price, so unless there is a supply shock where OPEC cuts production by a further say 20% then it's going to be difficult to see crude oil price going anywhere north of $30 anytime soon.

Again in terms of the big picture this just confirms to avoid oil stocks at all costs! No matter how enticing the collapse in their prices looks, just as they might have looked to all those who were tempted into buying oil stocks during March, only to see them go cheaper still during April.

The rest of this analysis has first been made available to Patrons who support my work: Is the Stock Market Correct to Ignore The Great Coronavirus Economic Depression?

  • Rabbits in the Headlights
  • Paving the Way for War with China 
  • The Coronavirus Greatest Economic Depression in History?
  • Crude Oil Prices Go NEGATIVE!
  • UK Coronavirus Catastrophe Current State
  • US Coronavirus Catastrophe Current State
  • Stock Market Implications and Forecast

So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month. https://www.patreon.com/Nadeem_Walayat.

And ensure you are subscribed to my ALWAYS FREE newsletter for my next in-depth analysis.

Your Analyst

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2020 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in